Affirm shares surge as BNPL demand rises
Affirm, the fast-growing buy now, pay later (BNPL) company is doing well as interest rates jump in the US and its key markets.
On Thursday, the company told its investors that its revenue in the first quarter rose by 53.80% to $354 million. Its loss narrowed to 19 cents per share. This growth happened as the number of active users in the platform rose from 5.4 million to 12.7 million.
One of the top catalyst for the company’s performance was the travel demand. With many people traveling, demand for shopping increased. Indeed, travel-related revenue rose to 11%.
Another catalyst for the company’s performance was the rising interest rates. In the US, the Federal Reserve decided to increase interest rates by 0.25% in the first quarter. It then accelerated this pace by 0.50% this months.
BNPL companies attract more demand in a period of high interest rates since they do not charge interest on their loans. Instead, these companies provide loans and make money by taking a small commission from their merchants.
Merchants don’t like paying these commissions. However, they sign up to BNPL companies in a bid to attract more customers. Indeed, the number of merchants using Affirm has been in a strong upward trend. They have risen from 4,800 in 2020 to more than 207k in the past quarter. In a statement, the company’s CEO said:
“We are laser-focused on scaling the network, increasing our consumer reach and frequency, going deeper with our existing partners, and adding new ones. Our opportunities remain fast with significant underpenetrated markets to reach.”
However, the biggest challenge that Affirm is facing is competition. In the past few years, the number of companies offering these services has been rising. The biggest competitor is Klarna, a European company that is valued at over $45.6 billion. It is also facing competition from Block’s Afterpay, Zip, and PayPal.
The Affirm stock price jumped by more than 30% after the company’s earnings.
